Star’s ‘workaround’ for cashed-up Chinese gamblers against ‘spirit of the law’

A Star Entertainment manager says the company followed the letter, not the spirit, of the law in allowing Chinese gamblers to transact tens of millions of dollars.

Slater and Gordon has launched a shareholder class action against Star Entertainment. Picture: NCA Newswire / Gaye Gerard

A general manager at Star Entertainment believed he did not have to follow the “spirit of the law” when developing a work­around to allow funds from cashed-up Chinese gamblers to flow into its casinos following a Beijing crackdown.

And a senior manager only told the NSW gaming regulator via an “informal discussion” that a VIP gambler was using his China Union Pay card at Star Sydney, despite using it for transactions totalling more than $20m, breaching an international ban.

The NSW Independent Liquor and Gaming Authority is holding an inquiry into the company’s suitability to run its Sydney casino.

The evidence came as Slater & Gordon Lawyers filed a class action on behalf of Star investors, alleging the company made “misleading or deceptive representations” about its compliance with regulatory obligations.

The class action was filed in the Victorian Supreme Court a day after chief executive Matt Bekier stepped down after eight years at the company’s helm.

Mr Bekier’s resignation followed explosive evidence at the ongoing review, including that the casino had set up a secret gambling room for a Chinese junket operator with criminal links and tried to avoid oversight, while Mr Bekier dismissed an independent KPMG report about its anti-money-laundering program at a “hostile meeting”.

The inquiry heard on Tuesday that following a Chinese crackdown in 2015 – aimed at stopping the flow of money from mainland China into foreign casinos – Star began developing a workaround.

Star general manager finance and commercial, Michael Whytcross, said the “objective was to do that in a compliant manner”.

But counsel assisting the inquiry Naomi Sharp asked Mr Whytcross: “How could it be compliant if there was a restriction in transferring money to ­casinos?” Gambling is illegal in China and considered a high money-laundering risk.

Mr Whytcross said: “I would have taken guidance from our legal team as to whether or not that was appropriate,” prompting Ms Sharp to ask: “Does that mean you were looking for devices which may have complied with the letter of the law but not the spirit of the law?”

“In hindsight I would have ­focused solely on the letter of the law rather than the spirit of the law,” Mr Whytcross said.

One of the workarounds allowed a junket operator withdrawing funds from his junket accounts and then depositing them in his personal Bank of China account in Macau. Ms Sharp said at least $76m flowed into Star’s account via this channel from September 2018 to July 2019, with Star not able to identify the exact source of cash, heightening money-laundering risks.

Meanwhile, Star’s lawyers said at the time that registering that junket operator with Austrac would be “commercially unacceptable”, the inquiry heard.

“Is it because it was a bit dodgy?” Ms Sharp asked.

Mr Whytcross said he could not speak for the junket operator but generally it was reluctant to go through “administrative paperwork”. “What you’re really saying is that you understood they didn’t want the kind of scrutiny that would be involved if they were just with Austrac. Is that correct?” inquiry head Adam Bell SC asked. Mr Whytcross replied that it was “a fair assessment”.

Earlier on Tuesday, Star regulatory manager David Aloi said he told the NSW gaming regulator that billionaire VIP gambler Phillip Dong Feng Lee was using his China Union Pay card at the casino. But that information was relayed in an “informal discussion” rather than in writing, and despite Mr Lee using his China Union card for transactions totalling tens of millions of dollars at the casino.

Mr Bell said: “You agree that it’s important that communications with the regulator need to be clear and unambiguous? And in relation to important matters ought to be recorded in writing?”

Mr Aloi agreed.

Since October last year, following widespread media reporting that Star cultivated high-roller players with criminal links and failed to comply with its anti-money-laundering obligations, the company’s shares have fallen more than 27 per cent to $3.26, wiping $1bn from its market capitalisation.

Meanwhile, Jefferies instigated a buy rating for the company on Monday, with Jarden following on Tuesday.

Slater & Gordon class actions senior associate Ben Zocco said: “For the last six years, Star has held itself out to be a model casino operator that took its obligations seriously and followed not only the letter of the law, but the spirit of the law.

“Star insisted that it took compliance seriously and ran its business ethically, honestly and with integrity. Our investigations to date, in addition to the extraordinary evidence revealed so far in the Bell inquiry, suggests that they did everything but.

“When investors purchase shares in a listed company, they are entitled to assume that all of the material information relevant to its financial position had been disclosed to the market.”

The inquiry continues on Wednesday.